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Best And Worst Q1’16: Industrials ETFs, Mutual Funds And Key Holdings

The Industrials sector ranks second out of the ten sectors as detailed in our Q1’16 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Industrials sector ranked third. It gets our Neutral rating, which is based on aggregation of ratings of 20 ETFs and 23 mutual funds in the Industrials sector. See a recap of our Q4’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Industrials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 348). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Industrials sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The U.S. Global Jets ETF (NYSEARCA: JETS ), the Guggenheim S&P 500 Equal Weight Industrials ETF (NYSEARCA: RGI ), and the Huntington EcoLogical Strategy ETF (NYSEARCA: HECO ) are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Fidelity Select Environment and Alternative Energy Portfolio (MUTF: FSLEX ) is excluded from Figure 2 because its total net assets are below $100 million and do not meet our liquidity minimums. The iShares Transportation Average ETF (NYSEARCA: IYT ) is the top-rated Industrials ETF and the Fidelity Select Transportation Portfolio (MUTF: FSRFX ) is the top-rated Industrials mutual fund. Both earn a Very Attractive rating. The PowerShares Dynamic Building & Construction Portfolio ETF (NYSEARCA: PKB ) is the worst-rated Industrials ETF and the ICON Industrials Fund (MUTF: ICIAX ) is the worst-rated Industrials mutual fund. PKB earns a Neutral rating and ICIAX earns a Dangerous rating. 409 stocks of the 3000+ we cover are classified as Industrials stocks. Landstar System (NASDAQ: LSTR ) is one of our favorite stocks held by IYT and earns an Attractive rating. Over the past decade, Landstar has grown after-tax profit ( NOPAT ) by 7% compounded annually. LSTR improved its already high 18% return on invested capital ( ROIC ) in 2004 to a top-quintile 22% ROIC on a trailing twelve months basis. Despite the consistent strength in its business, LSTR is undervalued. At its current price of $59/share, LSTR has a price to economic book value ( PEBV ) ratio of 1.1. This ratio means that the market expects Landstar to grow NOPAT by only 10% over its remaining corporate life. If Landstar can continue to grow NOPAT by just 7% compounded annually over the next decade , the stock is worth $72/share today – a 22% upside. Celadon Group (NYSE: CGI ) is one of our least favorite stocks held by Industrials ETFs and mutual funds. Celadon was placed in the Danger Zone in November 2015 and is a competitor to Landstar. Since 2009, Celadon’s reported earnings have been extremely misleading. Despite net income growing from $2 million in 2009 to $37 million in 2015, Celadon’s economic earnings have declined from -$16 million to -$25 million over the same timeframe. The disconnect comes from Celadon’s failed acquisitions, which have helped grow EPS while destroying shareholder value, something known as the high-low fallacy. Even though CGI is down 50% since our initial Danger Zone report, it still remains overvalued. To justify its current price of $9/share, Celadon must grow NOPAT by 8% compounded annually for the next 11 years . While this may not seem like a high rate of profit growth, keep in mind that over the past decade, CGI has only grown NOPAT by 3% compounded annually. Figures 3 and 4 show the rating landscape of all Industrials ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

5 Wild Inverse ETFs Betting Against The Market

Inverse ETFs are all the rage so far in 2016. As the market retests the lows made in January, these instruments are making new yearly highs. Those that got in before the start of the year are seeing double-digit returns, with the market down over 10%. Inverse ETFs must be looked at as tools of protection, not investments. The leveraged ETFs are especially dangerous as they can go down just as fast as they go up. A common mistake that is made is when an investor is nervous and starts to panic. They enter an inverse ETF when the market is very weak, thinking they’ve done well after seeing one day with a nice percentage move. However, this is only to be followed by a week of pain because the market had a relief rally. This mistake is called chasing and is a strategy for future broke investors and traders. A better strategy when using ETFs is one that most people aren’t familiar or comfortable with. Rather, it’s one of a trader. If we are in a bear market, there will be furious rallies as there always is. News will hit and bottom pickers will get in at the same time that shorts will be covering, causing a bear market rally. When this process plays out inverse ETFs will provide a nice entry point to protect against your overall portfolio from further selling. When the relief rally is over and market comes back in, it is smart to take profits and wait for the next opportunity. There are many inverse ETFs to choose from, but it is important to pick the right ones for our strategy in order to get the most return. One of my strategies over the years has been to use filters to sort out which instruments are reacting on a daily basis. I look for high percentage and large up and down point moves. This is a game for those that like volatility and risk-adverse investors should shy away. Some of the inverse ETFs that have been popping up on my filters of late are listed below. These instruments should be very active going forward and should be utilized only by the most nimble investors. ProShares UltraShort Bloomberg Crude Oil (NYSEARCA: SCO ) will move two times the inverse to crude oil. If oil is down 5%, this instrument will be up 10%. This move would protect investors that were allocated heavy in oil stocks. In the chart below, we see Exxon Mobil (NYSE: XOM ) versus SCO over the last year, and how investors could protect against a position in Exxon. SCO was up 2% today with crude oil down over 1%. Direxion Daily FTSE China Bear 3X ETF (NYSEARCA: YANG ) is all about China. This ETF will move three times the inverse of the FTSE China 50 Index. The fund creates short exposure by using 80% of its assets to get short in futures and other Chinese instruments. China has been a real drag on global stock markets as issues of global growth are surfacing because the Chinese economy seems to be slowing. The chart below shows China internet giant Baidu (NASDAQ: BIDU ) over the last three months in comparison to YANG. The ETF was up 7% today in anticipation of a big down day in china on Monday, when traders return from the New Year holiday. Direxion Daily Gold Miners Bull 3X ETF (NYSEARCA: NUGT ) seeks to reflect three times the inverse of the performance of gold minor stocks in the NYSE Arca Gold Miners Index. Gold is shooting higher because of financial stress fears coming from the banks; this in turn is good for gold stocks. The minors essentially get paid more for every ounce of gold they mine, improving the bottom line. If fears about European banks persist; gold will continue to have a bid. With all the gold miners catching that bid today, NUGT was up 22% as of this writing. Direxion Daily Financial Bear 3X ETF (NYSEARCA: FAZ ) is an inverse financial ETF that will move three times the inverse of the performance of the Russell 1000 Financial Services Index. The combination of European banking woes and the potential of negative interest rates has lead to weakness in the sector. The chart below shows Goldman Sachs (NYSE: GS ) in comparison to FAZ over the last three months. FAZ was up 8% today as of this writing. Direxion Daily Emrg Mkts Bear 3X ETF (NYSEARCA: EDZ ) is an inverse emerging markets ETF that moves three times the inverse of the performance of the MSCI Emerging Markets Index. This fund will move higher as emerging stock markets struggle. These markets have been some of the hardest hit over the last year, and that is reflected in the surge of EDZ. The ETF was up 5% today as of this writing. In Summary Leveraged Inverse ETFs give investors options in protecting their core positions. Markets will become volatile when under selling pressure, and these ETFs will follow suit. The approach for this protection isn’t one of chasing, like one would chase a momentum stock, but rather buying large market rallies and selling the panic of market dips. Original Post

The Bright Side Of Volatility

Stock markets around the world have had a bumpy ride so far in 2016. The CBOE Volatility Index (often called the “VIX”), a measure of expected stock market volatility, has doubled since early November , and US stocks have fallen more than 10% since the start of the year. These kinds of changes can be gut-wrenching and can make it difficult to maintain a long-term perspective. But for some investors who are able to do so, there’s a bright side to volatility. If you’re periodically investing money, such as putting a portion of each paycheck into a 401(k) account, volatility isn’t necessarily bad. When markets fall you’re able to acquire more shares, giving you “more bang for your buck.” This concept is similar to ” dollar-cost averaging ,” where the average price you pay for an investment will be less than the average of the prices at each of the times you’re investing (because you’re acquiring more shares when the price is low and fewer shares when the price is high). Compared to if markets just blandly moved in a straight line, the ups and downs allow your periodic investments on average to go farther. Of course, there are a few caveats to this volatility fairy tale. First, it assumes that the market will end up in the same place regardless of how much volatility there is. This assumption is clearly sometimes false; stock markets would almost certainly be higher right now if the beginning of this year had been a paragon of financial tranquility. But over the long term it’s approximately true. Stock prices 20 years from now are unlikely to be massively affected by how much stock market volatility there was in 2016. Second, the potential benefits of volatility only apply if you have a long time horizon for your investments. If instead you need the money in the near future and markets plunge, the fact that you can then get more bang for your buck won’t do much good. Perhaps the most important caveat, however, is that you need to be able to stick to your strategy of periodically putting more money into the market. When the kind of turbulence that’s characterized stock markets this year arrives, it can be tough to invest money knowing that one wild day of market moodiness might eliminate a chunk of it. But those who are able to continue making periodic investments can benefit in the long run.